First introduced in the early 1990s, ETFs became popular because
they're essentially baskets of securities (like mutual funds
are) that are listed on the American Stock Exchange. Because mutual
funds aren't listed on the exchanges, you can't trade them
all day as you can ETFs.

Currently, there are about 100 ETFs with assets totaling more
than $64 billion, according to the Investment Company Institute.
Some of the most popular are Spiders (SPY), reflecting the S &
P 500; Cubes (QQQ), representing the NASDAQ 100; Diamonds (DIA),
reflecting the Dow Jones Industrials; and Vipers (VTI),
Vanguard's Total Stock Market Index.

ETFs offer investors the ability to invest in broad-based
indexes or industry-focused ones; and they carry fundlike expenses,
such as annual expense ratios and dividend and capital gains tax
consequences. The beauty of ETFs is, you can trade them as you
would any other stock or buy and hold them, as many investors do
with index funds.

While ETFs offer plenty of pluses, they're not for everyone.
Nor are they risk-free. Under normal market conditions, index
investing can be volatile, depending on the index, sector or
industry. Add a bear market to the equation, and there's no
place to hide.

:: ONLINE
EXCLUSIVE ::

www.exchangetradedfunds.com: A solid
source of information about both U.S. and international
exchange-traded funds, including industry news, fund performance
and more.

www.ishares.com: Created
by Barclays Global Investors, some of the data available include
performance figures, investment strategies and more.

www.morningstar.com: One of the most
prominent investment industry sources for mutual fund investing,
this site offers plenty of both fund specifics and educational
information about exchange-traded funds.

Dian Vujovich is an author, syndicated columnist and
publisher of mutual fund investing site www.allaboutfunds.com.